1
Sema plc, a company in the heavy engineering industry, carried out an expansion
programme in the 2006 financial year, in order to meet a permanent increase in contracts.
The company selected a suitable site and commissioned a survey and valuation report, for which
the fee was £1,500. On the basis of the report the site was acquired for £90,000.
Solicitor’s fees for drawing up the contract and conveyancing were £3,000.
Fees of £8,700 were paid to the architects for preparing the building plans and overseeing the
building work. This was carried out partly by the company’s own workforce (at a wages cost of
£11,600), using company building materials (cost £76,800), and partly by subcontractors who
charged £69,400, of which £4,700 related to the demolition of an existing building on the same
site.
The completed building housed two hydraulic presses.
The cost of press A was £97,000 (ex-works), payable in a single lump sum two months after
installation. Sema was given a trade discount of 10% and a cash discount for prompt payment of
2%. Hire of a transporter to collect the press and to convey it to the new building was £2,900.
Installation costs were £2,310, including hire of lifting gear, £1,400.
Press B would have cost £105,800 (delivered) if it had been paid in one lump sum. However,
Sema opted to pay three equal annual instalments of £40,000, starting on the date of acquisition.
Installation costs were £2,550, including hire of lifting gear, £1,750.
The whole of the above expenditure was financed by the issue of £500,000 7% Debentures (on
which the annual interest payable was £35,000).
Before the above acquisitions were taken into account, the balances (at cost) on the fixed asset
accounts for premises and plant were £521,100 and £407,500 respectively.
Required:
(a) Using such of the above information as is relevant, post and balance the premises and plant
accounts for the 2006 financial year.
(b) State, with reasons, which of the given information you have not used in your answer to (a)
above.
(Association of Chartered Certified Accountants)